Goldman and CIC Teaming Up on Investment Fund Aimed at U.S.

By Chao Deng and Lingling Wei in Beijing and Julie Steinberg in Hong Kong

BEIJING– Goldman Sachs Group Inc. and China Investment Corp. are partnering on a multibillion-dollar fund to help the giant Chinese sovereign-wealth fund invest in U.S. manufacturing and other sectors, according to people familiar with the matter.

The fund is targeting as much as $5 billion and is a co-investment partnership between Goldman and CIC, which plan to announce their venture jointly this week during U.S. President Donald Trump’s visit to Beijing, these people said. How much capital Goldman and CIC will each contribute to the fund is still being worked out, one of the people said.

If completed, the deal is one of a number of agreements U.S. and Chinese businesses are expected to announce on Thursday in a ceremony presided over by Mr. Trump and Chinese President Xi Jinping in Beijing’s Great Hall of the People.

Other contracts, letters of intent and agreements involve aviation,liquefied natural gas and soybeans, and the deals are being presented as progress in a trade relationship that Mr. Trump has criticized as lopsided in China’s favor. Goldman Sachs Chairman and Chief Executive Officer Lloyd Blankfein, General Electric vice chairman John G. Rice and DowDupont Inc.executive chairman Andrew N. Liveris are among the dozens of U.S. executives coming to Beijing during Mr. Trump’s visit.

The delegation and the deals are meant to show that the Trump administration is working to reduce the U.S. trade deficit with China and promote American jobs, according to U.S. business groups. In pushing for deals,some executives with these groups are concerned that Beijing is deflecting pressure to provide greater access to the Chinese market for foreign businesses.

Mr. Trump has railed about the deficit, which came to $347 billion last year. Over the past year, Chinese acquisitions of U.S. companies have come under scrutiny from a government review panel. The Trump administration has launched an investigation into allegations that China pressures U.S. high-tech firms to turn over intellectual property, raising the risk of potential sanctions from the U.S. side and retaliation from Beijing.

Mr. Xi has also tightened Beijing’s grip on the economy and thrown his support behind a policy to position Chinese manufacturers to dominate robotics, electric vehicles and other high-tech fields–a program that has also drawn fire from the U.S. government and trade groups.

For China’s sovereign-wealth fund, the tie-up with Goldman will help it expand its U.S. investments to include more than publicly traded securities, real estate and private-equity assets.

With more than $200 billion in foreign assets, CIC is casting an eager eye at U.S. high-tech manufacturing, highways, rail lines and other projects,looking to generate steady, long-term returns for the fund and acquire the technological know-how to help upgrade China’s industrial base. In return, CIC officials have also said the fund can serve as a stable source of long-term capital for U.S. projects.

CIC has complained about what it says is an unfair review process by the Committee on Foreign Investment in the U.S. and called on U.S. authorities to improve the transparency of the reviews. In an interview with The Wall Street Journal in May, CIC President Tu Guangshao said “there is potential” for investments by both countries in each other.

By collaborating with a top Wall Street firm, CIC is seeking to diminish the chances its investments will be blocked, one of the people familiar with the matter said. CIC went to Goldman with the idea for the fund, a second person said.

For Goldman, the deal confers prestige and signifies the firm’s position in an initiative that is seen to be of strategic importance by both nations.

It may also better position the New York investment bank if Chinese authorities decide to grant foreign firms greater access to China’s financial sector, which is dominated by state-owned banks. One particular issue being considered by Beijing is whether to expand the ownership stakes foreign banks may take in their businesses on the mainland.

Currently, foreign banks may only own up to 49% of a partnership with a local firm. Goldman has called for majority ownership, including in conversations with local regulators, according to people close to the bank. So far, heavy resistance from Chinese state banks means Beijing is unlikely to rescind the ownership caps soon, according to Chinese officials and analysts.

Foreign investment banks have a less than 5% market share in investment banking, trading and other securities businesses in China, according to estimates from consulting firm McKinsey & Co. Even with better access, they would face formidable Chinese rivals, large state-owned Chinese banks with deep pockets and long-term relationships with corporate Chinese clients who may not recognize Western brand names.

Dawn Lim in New York contributed to this article.

Write to Chao Deng at Chao.Deng@wsj.com, Lingling Wei at lingling.wei@wsj.com and Julie Steinberg at julie.steinberg@wsj.com

Breaking the story

Chao Deng, Lingling Wei and Julie Steinberg were first to report that Goldman Sachs Group Inc. and China Investment Corp. are partnering on a multibillion-dollar fund to help the giant Chinese sovereign-wealth fund invest in U.S. manufacturing and other sectors.

Timeline

November 6, 2017, 4:35

Goldman and CIC Teaming Up on Investment Fund Aimed at U.S.: Sources

November 6, 2017, 4:35

Goldman/CIC Fund to Target as much as $5 Billion: Sources

November 6, 2017, 4:35

Goldman/CIC Joint Fund to Be Announced as Soon as Thursday: Sources

November 6, 2017, 4:35

Goldman/CIC Fund to Be Part of China-U.S. Deals During Upcoming Trump Visit: Sources

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